Bank Alfalah Project

BANK ALFALAH LIMITED

AHMAD BHATTI- ------------------------------------------------8259

SUPERIOR UNIVERSITY LAHORE


PREFACE

Hailey College of Commerce, University of The Punjab, Lahore is making valuable

contribution in generating such business executives who are serving in various fields in

Pakistan as well as in abroad. To familiarize the students with practical difficulties and to

apply their knowledge in practical field, it had been made compulsory to have exposure

through internship programs in different organizations. These internship programs enable

students to equip themselves with management tolls and technique. Keeping all that in

mind and being a specialized student of banking me also preferred to join banking

industry. Banking sector owes a pivotal importance in the economy of any country

through its vibrant function. Moreover the practice and familiarity learned during this

tenure would also attest very help full

ACKNOWLEDGEMENTIF YE GIVE THANKS, I WILL GIVE YOU MORE

(AL-QURAN)

We bow, beg and pray to Almighty Allah, Rehman-o-Rahim, in the name of our beloved Prophet Muhammad (peace be upon him) for continued showering of His blessing, guidance, strength, health, and prosperity to us.

During the period of my internship I found the Bank alfalah’s staff very kind and cooperative. They provide with us their whole attention and share their practical experience with me. Further they gave me precious time and provided useful information regarding the management of the report. I would like to thank following staff members:


Name Department

Muhammad Authar Branch manager

Najeeb-ur-rehman Operation manager

Imran ali zaide Deputy operation manager

Fawad Ali Operation officer

Junaeed ali Operation officer

Muzaffar ali Operation officer

Zikrea sahab Operation officer

Miss fakhra General Banking

Muhammad ali General Banking

Sohail ali General Banking

Muhammad zubair Foreign Exchange

Muhammad mohsin Foreign Exchange

Ali hussain Foreign Exchange

Ammar hussain Foreign Exchange

Miss saima Foreign Exchange

Aun sahab Foreign Exchange

Amir mehmood Foreign Exchange

Shahzad barkat Foreign Exchange

Akram bhatti Accounts

Kamran ali Accounts

Zahid ali IT officer

Abid ali operation manager

Asif ali ansari Foreign trade

Rehman ali Foreign trade

Imran ali Foreign trade

Shahzad durani Foreign trade

Haroon sahib Foreign trade

Khalik sahab credit officer

Muhammad aziz credit officer

BANK ALFALAH LIMITEDMiss sadia farooq officer

EXECU TIVE SUMMARY The aim of an internship was to have the practical knowledge about the organizational

working. The organization assigned to me for an internship was Bank alfalah township

Branch, Lahore. , the Head office of BAL is located in karachi.. Departments working

in this bank are General Banking, Accounts department, Credit & Administration

department. I accepted this task as a challenge and tried my best to explore & cover each

and every aspect of BAL with in my 6 weeks internship.

This internship report covers many important aspects which are basically related with the

operations and financial aspects of the bank.

This is the final report of the internship program. The report is on the Internship program

in Bank Alfalah.

First of all, in the report, the introduction of Bank Alfalah is given. For this purpose a

brief history of the bank is given in the start. Then its business vision and mission

statement are discussed

After introduction comes management system of Bank Alfalah in which its

Organizational Chart is drawn, corporate profile and managerial policies are included.

Financial analysis of the Bank is done in detail and also compared with one of its direct

competitors; NATIONAL BANK OF PAKISTAN. And it is also explained graphically.

After the financial analysis, a brief industry analysis is done. Particularly it is not

analyzed with the bank but generally with the financial industry. SWOT of the Bank is

also done.

BANK ALFALAH LIMITEDThen the whole internship program is discussed in detail. In this section all the

departments in which I have worked during my internship are explained in detail. The

working of the departments is mentioned and also at the end, my analysis of the

environment in that department is also mentioned.

In the end my findings and analysis of the Bank and its environment are given and then

recommendations are given.

HISTORICAL BACKGROUND

BANK OF CREDIT AND COMMERCIAL INTERNATIONAL (BCCI) 1972

Bank Alfalah’s history is about 23 years old when it was incorporated as Bank of Credit and Commercial International (BCCI) on 21 September 1972. It was incorporated in Luxembourg with a paid-up capital of $2.50 million. BCCI operated successfully in about 69 countries of the world. Due to an international conspiracy BCCI had to stop its operations. Here ended the first phase of history of Bank Alfalah.

HABIB CREDIT AND EXCHANGE BANK—1992

On June 21, 1992 the Ministry of Finance (Govt. of Pakistan) acquired its three branches and Habib Credit & Exchange Bank came into existence as a public limited company under the Companies Ordinance, 1984 and commenced banking operations from November 1, 1992. It engaged in commercial banking and related services as defined in the baking Companies Ordinance, 1962.

BANK ALFALAH—1997

After privatization of H.C.E.B. in 1997 bank alfalah came into existence on 21st

June 1997. The chairman of bank at that time was Highness Sheikh Nahayan Mabarak

Al-Nahayan, Minister of Education, Government of Abu Dhabi, and a prominent

member of Royal Family. HCEB was sold for Rs.1.70 billion. Its management was taken

BANK ALFALAH LIMITEDover by Dubai based consortium. With this started the success story of Bank Alfalah once

again.

PRESENT STATUSBank Alfalah Limited was incorporated on June 21, 1997 as a Public Limited

Company under the Companies Ordinance 1984. Its banking operations commenced from November 1, 1997. The bank is engaged in commercial banking and related services as defined in the Banking Companies’ Ordinance, 1962.

For the last 8 years it has been successful in providing commercial banking facilities to its customers and has developed a good reputation among Pakistan banks.

Quality services are provided as its backed by an Abu Dhabi based Group and driven by the strategic goals set out by its board of management, the Bank has invested in innovative technology to keep pace with growing market and needs of customers.

Currently Bank Alfalah Limited has 121 branches covering 47 cities spread all over

Pakistan, out of which 106 are conventional branches and 15 are Islamic Banking

branches. One overseas branch is located in Dhaka, Bangladesh. In the coming

years, the bank plans to open a number of new branches to ensure that its customers

get the benefit in the form of extended branch network and comprehensive products

and services.

Strategies and goals of Bank Alfalah Limited have enabled it to continue its upward climb in pursuit of excellence. Strengthened by the backing of the Abu Dhabi Group and driven by strategic goals set out by its Board and management, Bank Alfalah Limited increasingly inspires trust and confidence of all its clients and number of clients is increasingly significantly.

The bank aims to further enhance performance standards through implementation of innovations in both products as well as customer care, by discovering newer avenues of client benefit. These achievements have been preceded by concerted efforts to provide highest levels of service and value to its customers. This customer-focused strategy has

BANK ALFALAH LIMITEDenabled Bank Alfalah Limited to evolve as a single source financial service provider of corporate and retail banking services and regarded highly by its customers.

Over the years, the management has succeeded in establishing an ideological base for the employees to build the bank upon customer loyalty, service with dedication and development of a wide range of products for the customers to choose from.

Philosophies followed at the bank are:

High Quality Services

Innovative Products And Services

Better Performance

Foreign Trade is another success of bank and has developed excellent business and correspondent relations with well renowned banks of the world whose support in terms of lines of credit has enabled it to handle ever-growing trade volumes and diversified needs of customers.

Technology has opened new horizons in every field of life. At the same time, rapid change in customer preferences has resulted in a major shift from manual to automated services. Information technology today, is all pervading in the corporate world. Information technology department of bank has successfully developed an advanced computer program named BANK SMART. Bank Alfalah made heavy investments towards enhancing its capabilities in the area of automation and information technology.

Bank has made remarkable achievements within a short period of time despite being in the nascent stage. The bank is committed to put all its energies, resources and time to bring higher value and satisfaction of its customer, employees and shareholders successfully since 1997.


INTRODUCTION OF BRANCHThe Township Branch is strategically located at the AKBAR CHUNK. It is

located adjacent to Township bazar, which forms the junction of Township colony. It has ample of parking space and due to the attention and interest of the branch manager, Mr. Athar ali, the exterior of the branch has been delightfully decorated.

At the time of my internship, the branch has a total of 54 employees, ranging from the Bank Manager to the Tellers. Other than these officers, there were about eight workers ranging from the Security Guard to the Cleaning Boys to the Incharge of the kitchen etc.

The main reason of the bank’s existence is the acceptance of people’s money to keep safe until they need it back and extending money on interest to those who need it for investment purposes. The growing needs of people near the branch are the major reason for its increasing profits.

The branch is going well for credits , operations and foreign trade load is much las compared to other branches because it’s a new branch and foreign trade business is more risky and people prefer experienced branches for this.

OBJECTIVES

Bank Alfalah believes in the phrase “customer comes first”. BAL’s objective is to please their customers by fulfilling the financial needs as best as possible. They believe in placing the client at the center of business and all of the products and services.

Service excellence is one of the objectives of Bank Alfalah.

Alfalah strives continually on the development of new areas of activities to distinguish itself in the market place along with traditional banking activities of resource mobilization and credit disbursement.

Bank focus is on Foreign Trade as primary niche of business.

Alfalah’s objective is the complete automation and computerization of all of its banking activities.

Alfalah Training and Development program of its employees is aimed at developing skills of its employees. It makes positive contribution to the service culture of the banking system as a whole.

BANK ALFALAH LIMITED They are committed to put all their energies, resources and time to bring higher value

and satisfaction to their customers, employees and shareholders.

The introduction and development of innovative financial instrument will be another

major objective of Bank Alfalah Limited.

THE VISION


The Mission

H. H. Sheikh Nahayan Mabarak Al-Nahayan


MANAGEMENT STRUCTUREBank Alfalah is proud of its Human Resource, as almost all the employees have

been hand picked by the management. However, in this section, I would discuss those people who are responsible for hiring such a bright staff and establishing such a magnificent bank. They are the higher management of Bank Alfalah Limited.

THE CHAIRMAN (OUTGOING)

H. H. Sheikh Nahayan Mabarak Al-Nahayan is an important and prominent member of the ruling family of Abu Dhabi. After the culmination of his studies at Oxford, he returned to shoulder important responsibilities in the state administration. In 1988, he was appointed the President of the higher colleges of Technology comprising of eight colleges throughout the UAE – a responsibility he fulfilled with distinction. In 1990, he was appointed Minister of Higher Education and Scientific Research. Presently he also holds the presidency of the Society of the Natural History and National Heritage. In 1992, he became the Chairman of the Union National Bank and has since remained involved in strategic management of the institution.

H. E. Sheikh Hamdan Bin Mabarak Al-Nahayan


THE CHAIRMAN (NEW)

BOARD OF DIRECTORS

H.E. Shikh Hamdan Bin Mubarak AlNahayan ChairmanMr. Abdulla Naseer Hawalileel Al Mansoori DirectorMr. Abdulla Khalil Al Mutawa DirectorMr.Ikram-ul-Majeed Sehgal DirectorMr.Khalid Mana Saeed Al Otaiba DirectorMr. Nadeem Iqbal Sheikh DirectorMr. Sirajuddin Aziz Chief Executive officer

BOARD ADVISORY COMMITTREE

Mr. Abdulla KhalilAl Mutawa DirectorMr. Khalid Mana Saeed Al Otaiba DirectorMr. Nadeem Iqbal Sheikh DirectorMr. Bashir A. Tahir MemberMr. Ganpat Singhvi MemberMr. M. Iftikhar Shabbir Secretary


BOARD AUDIT COMMITTEE

Mr. Abdulla KhalilAl Mutawa DirectorMr. Khalid Mana Saeed Al Otaiba DirectorMr. Nadeem Iqbal Sheikh DirectorMr. Bashir A. Tahir MemberMr. Ganpat Singhvi MemberMr. M. Iqbal Safi Secretary

BOARD CREDIT AND FINANCE COMMITTEE

Mr. Abdulla KhalilAl Mutawa DirectorMr. Khalid Mana Saeed Al Otaiba DirectorMr. Bashir A. Tahir MemberMr. Ganpat Singhvi MemberMr. M. Iftikhar Shabbir Secretary

BOARD RISK AND MANAGEMENT COMMITTEE

Mr. Abdulla KhalilAl Mutawa DirectorMr. Khalid Mana Saeed Al Otaiba DirectorMr. Bashir A. Tahir MemberMr. Ganpat Singhvi MemberMr. Haroon a tahir Secretary

CENTRAL MANAGEMENT COMMITTEE

MR.Sirajuddin Aziz Chairman Mr.Parvez A.Shahid Co.ChairmanMr. Mohammad Yousaf Member Mr.shakil sadiq Member Mr. Shahid M. murtaza Member Mr.Nadeemul Haq Member Mr. Bakthaar khawaja Member Mr. adil Rshid Member Mr. Ijaz Farooq Member Mr. Ashfaq A.Qureshi Secretary


COMPANY SECRETARY

Mr. Hamid Ashraf

CHIEF FINANCIAL OFFICER

Mr.zahid ali H.Jaml

AUDITOR

A.F.Ferguson & Co.Chartered Accountants

REGISTERED/HEAD OFFICE

B.A BuildingI.I Chundigar road Karachi.

WEBSITE

WWW.bankalfalah.com


TOP MANAGEMENT HIERARCHY

ChairmanChairman

Board of Directors

Board of Directors

Chief Executive Officer

Chief Executive Officer

Executive Committee

Executive Committee

Executive Incharges

Executive Incharges

Area ManagerNorth

Area ManagerNorth

Area ManagerSouth

Area ManagerSouth


HEIRARCHY OF BRANCH

ImportsDepartment

ExportsDepartment

Foreign ExchangeDepartment

CHIEF MANAGER / BRANCH MANAGER

Manager InternationalBanking

MangerOperations

CashDepartment

Account opening Department

RemittancesDepartment

ClearingDepartment

AccountsDepartment

Internal AuditDepartment

MarketingDepartment

MangerCredits

LeasingDepartment

Home financeDepartment

Car financeDepartment

Credit cardDepartment


Field of Activities of BAL

This section is based on my observation and experiences and rotation during my internship at the Township Branch of Bank Alfalah Limited, Lahore. My internship duration was for six Weeks. I was rotated in Operations, Credits and Foreign exchange departments for different periods of time.

My first rotation was in Account Opening Department where I was under administration of Mr. Ammar Hussainand Ms.Aun

I spent second week in clearing Department. There I worked with Miss.Fakhra

After learning in clearing Department I was sent in Remittances Department. There I worked with Ms. Muzaffar Qureshi. Here I got chance to learn about different modes of transfer of funds.

Then I worked in Home finance Department under supervision of Mr. ALI and Mr. Sohail

My fifth rotation was to Credits, where I learned that how loan is advanced to the clients and different types of facilities the bank is providing to its customers. I went to car finance foreign trade deparment.

.

OPERATIONS DEPARTMENTOPERATIONS DEPARTMENT

In operations department my experiences of different departments are as under. Manager operations Mr. Najeeb-ur -rehman was supervising this department.

ACCOUNT OPENING DEPARTMENTACCOUNT OPENING DEPARTMENT

I worked in account opening department for one week with Mr. Ammar Hussain and Ms.Aunr. In account opening department I learned about


• Account Opening Procedure

• The persons who are eligible to open an account

• Kinds of Accounts offered by Bank Alfalah Limited

• Information about Royal Profit Account

• Documents required by different categories of persons

• Issuance of Cheque Book

• Preparation of Debit and Credit Vouchers

• Procedure of closing an account

• Information about Zakat Exemption

An account opening is an initial step of building contractual relationship with customer. Customers wish to open their accounts with their different requirements. Some people want an account in foreign currency. Some customers want Pak rupees account but with different type of account.

Bank Al-Falah offers following types of Currency Accounts:

• Rupees

• US$

• P.Stg.

• DM

• J.Yen

Customers can avail following types of Accounts:

PLS/Saving

In this deposit, profit (interest) is paid semi-annually in accordance with the remaining balances. The minimum account limit is Rs. 50000 and customer is required to maintain this much amount in his account.

Current

Current account can be opened in any currency. Initial deposit requirement is Rs. 25000 and customer is required to maintain his account with this amount. Deposits and with drawls can be at any time.

Royal Profit


Initial deposit for this account should be more than Rs.50, 000. Profit will be paid as per marker rate on monthly basis in accordance with the remaining balance. Deposit and withdraw of cash can be made anytime.

Term Deposits:

This term deposit varies with duration of times. On this fixed deposits profit will be paid as per time period and money ranges.

Durations • 7 days

• 30 days

• 3 months

• 6 months

• 1 year

• 2 year

• 3 year

• 4 year

Call Deposit:

This account has been particularly designed for Tenders. To avoid the cheque bounce, receipts are issued in which specific amounts are invested and withdrawn.

Sundry Deposits:

This account has been designed for lenders, in which they maintain a specific amount. The major purpose of this account is to discourage the defaulters.

Bank Al-Falah welcomes the following types of Organizations:

• Limited Co.

• Public

• Private

• Partnership

• Club/Association/Society

• Sole Proprietorship

• Others


Documents Required for Limited Co.

Copy of Certificate of Incorporation

This document is issued by SECP (Securities Exchange Commission of Pakistan) on the inception of company. This document shows that Co. is registered by Govt. of Pakistan under Co’s Ordinance, 1884.

Memorandum and articles of Association

These contain on following attributes

• Nature of business

• Capital

• Shares transfer & transmission

• General meetings

• Borrowing power

• Accounts etc

List of directors:

List of directors is required on company’s letterhead page.

Copy of Board Resolution:

In this certificate, an acceptance letter is issued by co’s directors in which they declare that they are authorized or give sovereignty to some one to operate the account with desired title, honor the cheque, bills of exchange, promissory notes drawn, signed, accepted or more on behalf of the Co. by any one of the director.

Certificate of Commencement of Business

Once the Co. registered by SECP, it allows the Co. to generate specific funds to start the business. When Co. achieves the target, SECP issue a Co. Certificate of Commencement of Business.

Copies of NIC of directors:

Photo Copies of NIC of all directors are essential to open an account for Limited Co.

Form-29

This certificate is issued by SECP to the Registered Co. in which essential details of Directors and officers (CEO, Managing Agents, Secretary, Chief Accountant, Auditors, Legal Advisors etc) are documented.


Documents Required for Partnership.

Partnership Deed, Certified Copy

This document contains the name, location, type of business, commencement date of business, share of capital investment, declaration of authorities, limitations and net profit and loss of the firm etc.

NIC photocopies of all partners:

NIC Copies of all partners are required.

Partners mandate for operation of Account

In this document, partners of the Co. agree to operate an account together or authorize any one partner to operate an account. This document with the proclamation is required to be signed by all partners.

Documents Required for Club/ Society/ Association

• Copy of Rules/By Laws

• Copy of registration

• List of executive member Management Committee/ Management/ Board etc.

• Certified Copy of resolution

• NIC of all members of Management body

Documents Required for Sole Proprietorship/ Individual

NIC/ Passport photocopy:

To open a sole proprietor ship or individual account, photocopy of NIC or passport is required.

Letter from the Proprietor

BANK ALFALAH LIMITEDLetter from the proprietor is required for the purpose of confirming Sole

Proprietorship.

Procedure of Account Opening

Once customers submit the forms to officers, all the provided information’s are verified. After confirmation, account no is assigned to account holder. After this all information’s are saved in system.

• This account is further approved by Manager operations

• After approval, S.S Card (attached with form) is received by Head of Cash Dept.

for the purpose of scan the signature of account holder.

• Once the new account is opened and all information is saved in system, then

Letter of thanks is sent to customer.

• One photocopy of gratitude letter is dispatch with form and pasted in File with

complete documents.

Procedure of Account Closing:

When a customer wishes to close the account, the instructions are followed:

• An account holder has to fill up the account closing form.

• After verification of Account holder’s signature, cheque book is collected from

the customer.

• Account balance should be zero.

Approval of account closing is taken from Branch Manager.At the end, S.S Card is received from Cash Dept; it is attached with the form and

pasted in Account Closing File.

CLEARING DEPARTMENTCLEARING DEPARTMENT

In clearing department I worked for 7 days with Miss.Fakhra and learned about inward and outward clearing and I also learnt about:

• Procedure of clearing a cheque

BANK ALFALAH LIMITED• Checking of cheques

• Inward and outward clearing

• Within bank transfer

• Different reason of returning a cheque

• Types of clearing stamps

The basic function of the clearing department is to facilitate the customer; it provides them the services in collection of their cheque in other banks. Clearing actually means the transfer of funds from one branch of bank to the other branch of the same bank or the other bank on which the instrument is drawn, without involving cash through State banks clearing house.

NIFT:

NIFT stands for National Institutional facilitation Technologies. Clearing House of SBP has shifted a tiresome part of its work to a private institution named NIFT. NIFT collects cheques, demand drafts, Pat orders, Travelers Cheques, etc. from all the branches of different banks within city through its carriers and send them to the branches on which these are drawn for clearing. After the branches approve the instruments drawn on them, NIFT prepares a sheet for each branch showing the number for instruments and amount in its favor and drawn on it and sends it to each branch. A similar sheet for each bank is also sent to clearing house of SBP where accounts of banks are settled in the same manner.

The instruments are collected from the client. Following things are checked.

• Cheque date (a cheque is valid for six months, for example a cheque is dated

01.01.08 it will be valid till 30.06.08 and it should not be post dated).

• Title

• Amount in figures and words should be same

• There should be no cutting and overwriting on the cheque.

• Deposit should also match with the cheque.

Stamping Procedure:

BANK ALFALAH LIMITEDIn stamping procedure, the pay-in-slip counter foil the following three stamps are

used:• If the cheques is for the same bank, and drawer and the payee both have the

account in the same bank, the simple bank stamp is used, and this stamp indicates

the transfer of cheques from one account to another account. This cheque is

directly moves towards posting in computer terminal where the computer operator

debit one account and credit the account of another party. This stamp is known as

the Transfer stamp.

• If the cheque is received from other bank and drawer’s account is not in the bank

then cheques received stamp is used. This cheque is represented in the

clearinghouse; date is also mentioned on the stamp.

• If the cheques is from out of the city then it is send for the collection.

Stamping On Cheques:

After receiving the cheques and issuance of the counter foil to the client, stamping process starts on the cheques, the following stamps can be used.

The name and branch name of the bank stamp is used on the front side of the cheques. This stamp is used on all types of cheques. This stamp is known as crossing stamp.

The second stamp used is the clearing stamp on the front side of the cheques. It also indicates the presenting date of the cheques. If the cheques is dishonored and deposited again for clearing, the clearing stamp is used again with new date of presenting. So the clearing stamp is necessary wherever the cheques are presented for clearing.

The third necessary stamp that is the endorsement indicates the paying bank to “payees account credited”. It is the confirmation of outward clearing.

The whole clearing process requires about 2 days, after 2 days the customers’ account is credited and the customer can make the transactions.

REMITTANCES DEPARTMENT

In remittances department I remained for 7days and worked with Mr.Muzaffar Qureeshi.In remittances I have learned about transfer of money through:

• Demand draft (D.D)

BANK ALFALAH LIMITED• Pay order (P.O)

• Pay slip (P.S)

• Telegraphic transfer (T.T)

• Mail transfer (M.T)

• Local remittances and outgoing remittances

• Schedule of bank charges for remittances

• Calculation of taxes on remittances

• Calculation of taxes on remittances

• How to prepare pay order, demand draft

Remittance is transfer of funds from one city to another city or within the city. For this purpose, most commonly used instruments are

• Demand Draft

• Pay Order

• Telegraphic Transfer

• Online Transaction

DEMAND DRAFT:

Demand draft is made to transfer the funds from one station to other station. This is not made for the same city and payment duration is 3 to 4 days. Demand draft is made on the request of purchaser on drawee’s name or he may any bank account holder.Demand draft is issued by three ways:

• Through cheque

• Through cash

• Through transfer

To settle this transaction, Sundry demand draft issued account is credited and Head Office account debited on the time of DD issuance and on the time of payment Sundry demand draft issued account is debited and Head office account is credited.When demand draft is drawn on Bank Alfalah Sundry demand draft issued account is debited and Head office account is credited.

Irregular Case:

BANK ALFALAH LIMITEDIf demand draft advice reaches to drawee bank late and beneficiary (purchaser

bank) wants to get Demand Draft cashed, in this scenario drawee bank would make the confirmation with issuing bank and find out all the detail information since bank cannot refuse to accept the original demand draft if it reaches earlier. Drawee bank will debit “DD paid without advice account” and “Head office Account” will be credited. If demand draft with more than 100,000 rupees drawn on any bank, issuing bank will send “Tested Telex Message” to drawn bank for “ Double Caution” purpose.

Demand Draft Misplacement:

In misplacement scenario, payee would contact to purchaser who further asks to issue bank. It would further contact to drawee’s bank to know whether issued Demand Draft still outstand or not. If it does outstand, drawn bank would make this DD as stop payment in Demand Draft payable Register. If misplace DD has been paid then duplicate DD can’t be issued.

Agency Arrangement:

Those cities where Bank Alfalah has no branch, Bank has an agreement with particular banks where Bank Alfalah will draw demand drafts and telegraphic transfers. These banks will liable to perform operation on behalf of bank alfalah and will receive 40% commission against this transaction.

Cancellation of DD:

In case, client wants to cancel the draft he has to make an application with his signature. Banker checks the signature. Amount of draft is returned to client after deducting cancellation charges. The cancellation charges are Rs 100.

PAY ORDER

Pay Order is also known as Banker’s Cheque. This is the safest way to transfer funds within a city. A pay order is an instrument in writing issued by bank for a certain sum of money payable on demand to the order of the payee mention within the city, where as pay slip is used for bank’s internal use. Pay order can be made for outstation but it will take more time for example; if pay order is sent from Lahore to Karachi, this will be sent back to Lahore for collection purpose then it will be lodged in clearing afterwards this will be sent back to Karachi at required place.

Total time duration of pay order is not more than 2days.when pay orders are made, control number is assigned to determine how many pay orders are issued to a particular city in one year.

Pay orders are prepared by two ways:• Cash

• Cheque

BANK ALFALAH LIMITEDThe client makes a request to the banker for issuance of a pay order. The banker

gives him an application form to fill and ask him to deposit the amount for which he requires the pay order. The client deposits the amount in cash with bank. If he is account holder of the same bank, he can give cheque upon which amount is transferred from his account. After the fulfillment of all these requirements banker issue the pay order to the customer. Bank takes charges for issuance of pay order, which varies from bank to bank. Bank Alfalah takes 10 rupees irrespective of any location in city.

After issuing Pay order, banker gives credit Sundry creditors account. Posting is made in the computer terminal. When Pay order is presented on cash counter bank makes payment against it after checking N.I.C of payee and Sundry creditors account is debited. If it is crossed, the amount is transferred into the payees account.

Cancellation of Pay Order:

If purchaser is willing to cancel the pay order bank will not entertain such customer. If purchaser gets the cancellation of pay order from beneficiary, bank will make the pay order canceled.

Incase of Misplacement:

If beneficiary misplaces his pay order, he will inform to purchaser. Purchaser will have to submit indemnity bond where he will fill up all the particulars and oblige to give back pay order to issuing bank when he will find pay order back. Then issuing bank will issue the purchaser duplicate pay order.

TELEGRAPHIC TRANSFER:

TT is the quickest way to transfer funds from one station to another. This process takes not more than one or two hours. TT is made on purchaser’s request who in turn gets “Cost-Memo” in form of receipt in which TT number, charges that bank has deducted, drawee bank name, issuing bank name, purchaser’s account number and other particulars are included.

Telegraphic Transfer is bank-to-bank, and branch-to-branch. The bank has settlement with other banks according to which the banks can make the payments to the customer’s account mentioned by the other bank in the TELEX. In this case proper authentication is must for this purpose.

Beneficiary acts in two ways:

• In First case, he may be account holder of Bank Alfalah but does not want to add

this amount in his account then message would be “Advice & Pay”.

• In Second case, beneficiary is account holder and wants to add TT amount in his

account then message would be “Advice & Credit”.


Customer obtains a requisition slip and fills it properly. After filling the application from the concerning officer fills the TT form. This Telegram is send to he required bank. After receiving the telegram bank immediately makes the payment to the customer and the vouchers sent to the issuing bank by ordinary mail.

Bank debits the account of the customer or receives cash including charges of the bank.TT is made through codes. Bank sent telegrams with codes and in banking language using the words test.

ONLINE TRANSACTION

For branch-to-branch transfer of funds on the same day, previously TT was used. But now banks have adopted a new system known as Online Transfer.

In online transactions cheques of different branches can be paid. For instance if a client has taken Online Transaction facility and presents Multan’s cheque to Bank Alfalah Lahore, he/she can have payment from Lahore. If the cheque has been cleared from Multan Bank Alfalah, a copy of cheque is made and is faxed to appropriate branch; the branch then checks the client’s balance, date of cheque and signature of client. If the cheque is given clearance from the respective branch then payment is made to client, the branch is then debited and the branch that has made payment is credited

ACCOUNTS DEPARTMENT

I worked for 1 week in accounts department with Mr. Salman Rauf and Mr. Luqman Hanif and found that in Banks, the accounts department plays a vital role. In Bank Alfalah the burden of accounts department is largely reduced because of MIS. The use of IT increases the efficiency and pace of bank’s work.

Following activities are carried out in Accounts Department.

• Budgets

• Income & expenditures

• Reports

• Budget review form

• Reconciliation

• Foreign Exchange; Forward Contracts

BANK ALFALAH LIMITED• Activity checking

• Funds management

• Depreciation & Maintenance of fixed assets provision

• Minutes of the branch review committee

• Test Keys

BUDGETS:

Annual budgets are prepared three months earlier before the start of New Year. One-year budget are further splits in semi-annually, and monthly basis. During three months, budgets are reviewed by head office (Karachi branch).At times changes are asked to make in accordance with changing rates, excess funds and due to other reasons. Budgets are revised after amendments.

Major heads include in budgets are:

• Deposits

• Advances

• Car finance

• Exports

• Imports

• Guarantees

• Sales of rupee travelers cheque

• Income/ expenditure

The revenue target is fixed keeping in view the past performance. The cost of generating these revenues is also estimated. Then budget of each branch is submitted to head office for modifications and for approval. After the modification and approval the budget for a specific branch is being set by the head office. Monthly budget meeting is held to analyze the monthly performance by all the branch managers with head office. The actual performance is compared with the estimated and variance is calculated. Variance can be negative as well as positive. If there is a negative variance, this shows management’s inefficiency in controlling its expenses or incompetence in achieving the desired revenue target. Proper Adjustments are made in the next month’s target according to the previous month’s performance because sometimes the goals that are set by the head office are unrealistic and unachievable.

Income & expenditures of bank:

Income


• Mark up on advances

• Mark up on h/o balances/ demand a/c

• Mark up on placements

• Mark up on investments

Expenditures:

• Total interest expenditures

• Total administrative expenditures

• Personal cost

• Training & subscription

• Rent, taxes, instrument

Reports:

In Allama Iqbal Town branch, each and every activity with their particular are reported daily by MIS. Besides daily reports, these are weekly, monthly, semiannual, and annual reports. These are generated from the main frame and are used or proper analysis.MIS compiles every activity of each department. Account and Audit departments further authenticate these activities on daily basis.

Statement of Affairs

It includes information about assets, liabilities and their balance. Daily position of deposit and advances are also calculated in this report.

Subsidiary Statement:

This is a detailed report that includes all the information regarding the statement of affairs.

Income & Expenditure Report:

It includes all the details regarding to both the heads of income and expenditure in detail.

Royal Profit Report:

It includes the details of the deposit of royal profit account.

Currency Wise Report

It provides the details of all the deposits currency wise.


New FCY Report:

This report includes the information regarding only the new foreign currency accounts. The old foreign currency accounts are those that were at the time of nuclear explosion in Pakistan and were being freezed by Nawaz Sharif Government.

Sub 66 Report:

It contains income, expenditure, general ledger accounts and their balances.

Daily Position of Advances & Deposits:

This report is being sent to the Head Office daily in which the detail is given regarding the new accounts of deposits and advances.

RECONCILIATION

Bank Alfalah prepares its reconciliation statements with • Head Office

• State Bank of Pakistan

Head Office Reconciliation:

All the debit and credit entries of the main office account are recorded in the statement. Then it is checked with physical vouchers and if there is any problem, they reconcile it. Head Office check the outstanding entries, if there is any entry posted by branch but not by head office they will send their query to the branch and then branch will respond to that query by sending the required document. Head office reconciliation is carried out in the head office; accounts department handles inquiries.

State Bank of Pakistan Reconciliation:

State Bank of Pakistan maintains the account of every scheduled bank including Bank Alfalah. The statement of account reconciliation shows the entries that are passed during the month in both banks. Bank Alfalah compares the statement with the ledger card of State Bank of Pakistan in which all entries are recorded done with SBP. If any amount debited by SBP and Bank Alfalah doesn’t credit that amount, it is added in the balance of the reconcile statement provided by the State Bank of Pakistan to Bank Alfalah.

FOREIGN EXCHANGE FORWARD CONTRACT

Since Pakistan is a foreign exchange control country, all the foreign exchange had to be submitted to the SBP. The new Fcy accounts are treated differently. There is an

BANK ALFALAH LIMITEDarrangement with the head office treasury. Revaluation of assets and liabilities takes care of balances. Previously all the banks kept their foreign exchange with SBPon an agreement that SBP will purchase the foreign exchange on book rate and SBP charged a fee for risk coverage. The whole transaction is known as Foreign Exchange Transaction. Now this facility is not available to banks on new accounts but they can avail this facility on old accounts by renewing the limit on old accounts with SBP. Banks do all these transactions through treasury.

For old FCY counts, whenever the foreign exchange is deposited to the accounts, the $ amount is debited to the SBP and equivalent Pak Rupees are credited to the bank’s account. This is done to take care of the exchange risk and to minimize it. This is a sort of forward contract with SBP in which the Forex is sold to SBP on a particular date at the particular rate of conversion. The difference between the purchase and sold amount of Pak Rupees is then credited to the exchange difference account and SBP’s account will be debited. The contract may be rolled over i.e. the Forex may be rebooked or resold to the SBP for another three months or one year.

BUDGET REVIEW FORMS

These forms are designed to review the actual budgets and performances with expected performances at the end of every month.

ACTIVITY CHECKING

Activity checking is the process of the entire banking, which is taken place on daily basis. The report specifies every vouchering, which has taken place. Sorting is made according to the mainframe-generated report. All the Vouchers are checked that whether they are properly posted or is there any transaction is left to be posted. This checking makes the working of the bank more efficient and avoids any loopholes.

FUNDS MANAGEMENT

Every commercial bank is oblige to open an account in SBP and maintain the amount almost 5% of its total liabilities (deposits) in it.

Bank Al Falah Head office Karachi branch helps Allama Iqbal Town branch to maintain its funds in SBP.Whenever its funds short fall, it informs head office branch to transfer the funds to SBP.

Besides all liabilities, bank invests its excess funds in its head office branch that pays interest on it. Head office branch manages to cover its Allama Iqbal Town branch’s gap in SBP from its funds invested in it.

If SBP gets excess funds in clearing process, these funds are transferred to Karachi head office branch.

DEPRECIATION OF FIXED ASSET’S PROVISION

BANK ALFALAH LIMITEDStatements of fixed assets provision for depreciation are prepared on monthly basis

with the heads: • Provisional Depreciation

• Debt and Credit

• Balances

• And accumulated Depreciation with determined rates.

• Depreciation is charged at the following rates:

MINUTES OF THE BRANCH REVIEW COMMITTEE

The role of review committee is to compare the projected budgeted figures with the concrete results and suggest appropriate actions to count over the variances. This review committee also articulates the remarks on performances.

TEST KEYS

Test is a coding system used to authenticate money transactions between banks. Whenever money is transferred through TT, the concerned officer requests the accounting department to apply test to the message. The test is applied to the message; three copies of this message are prepared. One goes to the test key dept. one to the Telex/ Fax operator and the third one goes to the dept. record. When the TT is received at the other end, this test is verifies. The transaction will be carried out if and only if the test matches with their own test.

Banks have arrangement with their banks with which they have quite a large volume of business and it is beneficial to have a direct arrangement with these banks. This test arrangement can be with banks within country and outside country. For example Bank Alfalah has test arrangements with ABN Amro N.Y, American Express N.Y, Citi Bank N.Y etc. When this arrangement is carried out a test key is provided to the concerned bank, which contains codes. This test key is different for every bank. This test key is also different for inward and outward TT.

In local transfer double coding is used and in foreign transfer single coding is used. Test key tables are to arrive at the code. Separate key table are used for different banks. Twelve branches of Bank Alfalah have arrangement for local transfer and three branches are authorized for foreign transfer. Four things should be carefully checked because code is based on four things:

• Branch Name

• Currency

BANK ALFALAH LIMITED• Date

• Amount

Test can be applied on nil amounts. The purpose is to just secure the transaction. Another important significance of test is agency arrangement, which bank built with other banks. The bank also solves inquiries originated by any bank regarding the delay of any message. They will check the message and will respond to the query.

CASH DEPARTMENT

I did not worked in cash department but the staff their guided us about the working their and I understood that the department is responsible for the handling of cash deposits and encashment of cheques issued by the depositors.

Receipt of Cash:

In receipt section deposits are received in form of cash. The depositor use pay-in-slip for depositing the amount. There are two different types of slips for both saving and current account.

The client gives all the detail regarding date, account number, title of account, amounts in words and figure. The pay-in-slip is stamped, cash is received and counter foil is given to the depositor. The adjacent credit voucher is used for recording and posting purposes.

In case the client is depositing money in his/her account through a cheque of another bank, and then the cheque is lodged in clearing. Cheque Encashment Section:

The process of cheque encashment is done with the help of the following procedure.

• Receiving Cheques

• Verification of signatures

• Computer terminal process

• Payment of cash


1.Receiving of Cheques:

The cash is paid against the cheque of the client. The following things have to be checked by the cashier before the encashment of the cheque.

• The cheque that is presented should be drawn on Bank Alfalah Limited.

• Cheque is not post dated or the date should exist, for example it can’t be of 30th

February etc.

• It should be a bearer cheque

• Amount in words and figures should be same.

• Alterations in date / figures / words require drawers’ full signature

• The receiver of cash should make one signature on the back of cheque.

2.Verification of Signatures:

After receiving the cheque, the officer verifies signatures of the account holder and the signature on the cheque. The signatures are feeded in the computer so they are checked from the computer. The CD personnel scan the Signature Specimen Card and add the mentioned account number with the SS Card. It is then load in the main Server. In this way the officers can use the SS Card for the verification of the signatures. If signature is not same than it is returned back, otherwise forwarded to the computer terminal.

3.Computer Terminal Process:

The cheque is received in computer terminal, where the computer operator checks the balance of the account holder that whether there is enough balance in the account or not. After considering these points the computer operator posts the cheque in account holder ledger and after cancellation of the cheque returned it back to the cashier.

4.Payment of Cash:

After the cancellation of the cheque the cashier enters the cheque in the “Cash Paid Register” and pay against the second signature of the receiver on the back of the cheque.

CREDITS DEPARTMENT

In credits department my experiences of different departments are as under. Manager credits Mr.Khalik was supervising this department.

BANK ALFALAH LIMITEDIn this department I learnt about:

• Credit facilities for customers

• Long term & short term loans

• Employees loan

• Securities for credit

• How to give credit to customers

• Five C’s of credit

• How to prepare credit line proposal

• Parts of credit file

• Facilities for borrowers

• Study the prudential register

• How to recover the loan

• Funded facilities

• Non funded facilities

• Letter of guarantee and its types

The basic function of a bank is to receive deposits (at low rate of return) and to lend money (at a high rate of return). So, the lending operations of a bank constitute a vital part of its business. This department is the source of income and earnings for the bank.

Bank’s funds comprises mainly of money borrowed from numerous customers on various accounts such as saving accounts, current accounts, fixed deposits etc. Whereas the major part of total income of a bank is generated through the utilization of these funds.

The credit department is further divided into two departments that are as follows:

• Credit Marketing

• Credit Administration

Credit facilities in Bank Alfalah

BANK ALFALAH LIMITEDBank provides two types of credit facilities to its customers. Following are those credit facilities:

• Funded

• Non-Funded

Funded:

Funded facility is that facility in which the bank funds are physically involved. It is further divided into following types:

• Current Finance (OD)

• Cash Finance (Pledge)

• Term Finance

• FAPC I

• FAPC II

• FAFB

• LBP

• FIM

• FATR

Current Finance (OD):

This is the most common form of bank lending. In over draft facility, a customer is allowed to withdraw on his account in excess of the balance that the borrowing customer has in credit. So when a customer withdraws in excess of his balance, an overdraft occurs (balance becomes debit). This facility can be availed for a certain limit called OD limit and is used to meet the seasonal requirements of cash. In current finance the interest is only charged on the amount that has been over draft.

Cash Finance (pledge):

This is also a very common form of borrowing by commercial and industrial concerns, and is made available either against pledge or hypothecation of goods. This is also known as running finance. It is utilized for the creation of current assets and to meet the permanent working capital requirements. In this facility, the borrower is allowed to borrow money from the bank up to a certain limit, either at once or as required. The borrower prefers this form of lending due to the facility of paying mark-up charges only on the amount he actually utilizes not the whole limit amount.

Term Finance:

BANK ALFALAH LIMITEDTerm finance is for a fixed period of time, all the amount is transferred to the

borrowers account right in the beginning and interest is charged. The mark-up is received in the end on semi annually basis. Term finance has to be paid within a limit and once it is paid the client cannot take it back.

FAPC I (Finance against packing credit):

Bank provides this facility against LC or sale contract (in favor of exporter). Bank takes 100% security against this type of financing. This facility is also called Pre shipment finance. Afterwards bank receives the payment of exports and adjusts the exporters account.This loan is disbursed by the bank for the preparation of goods once the L/C is received.

FAPC II (Finance against Packing credit):

This loan is also known as performance-based financing. This type of financing is against last performance of the exporter. According to SBP exporter can have finance up to the half of amount of previous year export but then the exporter should ensure that the exports he makes are equal to double amount of the loan for one year. The mark-up is charged for the period the exporter has used the facility and not for the whole limit.

FAFB (Finance against foreign bills):

This facility is also known as post shipment finance. This facility is availed by the exporter after he has shipped the goods and sent his documents for collection. The bank purchases the documents from the exporter and gives him this facility. He will take loan against these documents and pays fixed mark-up rate on this facility.

LBP (Local bills purchase):

Local bill purchase documentary is used for inland import export transaction. Other wise it is same as finance against foreign bill purchased. This is also availed by the exporter after the shipment of goods and the bank purchases the documents.

FIM (Finance against imported merchandise):

Finance against Imported Merchandise (FIM) is a credit facility provided to the customer, in L/C transaction. In FIM, bank itself makes the payment to the exporter and the goods are kept in the possession of bank. Delivery order (DO) is issued by the bank for every time, when the importer makes the payment, goods are transferred in the possession of importer.

FATR (Finance against Trust Receipt):

The bank also offers credit facility FATR, against sight L/C’s, like FIM. Contrary to FIM, goods are given in the possession of importer. This facility is provided to the customer having a credit rating A+.

BANK ALFALAH LIMITEDNon-Funded:

Non-funded facility is that facility in which the bank’s funds are not physically involved. A non-funded facility can any time become a funded one. It can further divided into the following:

• L/C

• LG

L/C (Letter of Credit):

Letter of Credit, whether sight or usance is a non-fund based facility provided to the customer. L/C can further divided into sight L/C and Usance L/C.

Sight L/C:

If the beneficiary of a credit is to obtain payment immediately on presentation of stipulated documents, it is a Sight L/C.

Usance L/C:

When a credit stipulates payment to the beneficiary upon the maturity of a bill of exchange drawn under the terms of the credit, it is an ‘acceptance credit’, ‘term credit’ or ‘usance credit’.

In this form of credit the beneficiary draws a draft for a particular usance (e.g.30, 60, or 90 days etc) payable upon either the correspondent bank or the issuing bank.

L/G (Letter of guarantee):

Letter of Guarantee is also a non-fund based facility. Letter of guarantee involves three parties namely buyer, the seller and the guarantor. The letter of guarantee is basically bank’s guarantee that the respective person will perform his/her duties/services within the appropriate time other wise the bank will pay the loan amount. When the bank takes the guarantee of the client, a commission is charged from the customer.

Types of L/G:

• Bid Bond

• Performance Bond

• Security Deposit

• Repayment Guarantee

• Mobilization Advance

• Back to Back Guarantee

BANK ALFALAH LIMITEDSecurities for Advances

The advancing of credit involves a great risk for the bank. Therefore, to cover risk, the bank keeps different tangible and non-tangible securities, before sanctioning the credit facility to a customer. The bankers prefer those securities that carry less risk of depreciation due to market fluctuations and are easily saleable, even under changing market conditions.

The securities used in advances are as follows:

• Pledge

• Mortgage

• Hypothecation

• Charge

• Lien on Documents

• Guarantees

Pledge:

Pledge is the actual delivery of the movable and tangible property to the lender, as a security for a credit. In pledge, the possession of movable assets is with bank but the ownership remains with the client. Pledge is considered to be the best security for the bank. The commodities which are being pledged are normally raw material, consumables, finished goods and in certain cases work in process (WIP).

Margin:

For every credit, the bank needs security with margin or cushion. The margin requirements are different for every case. IF, there is 25% margin requirement then to obtain loan of Rs 1 million, the security that is to be pledged should be have worth of Rs. 1.25 million.

The possession of the goods is with the bank, so bank keeps these goods in godowns under the custody of Mucaddams.

People who look after the pledged goods are called Mucaddams. If rice is to be pledged with the bank, it doesn’t mean that this cotton will be kept n bank, such type of goods is kept in the godowns of the company. So to make these goods secure bank appoints its own men called Mucaddams to take care of the stock and also bank has a board of its own name on the godown.

Precautions:Nature of Commodity:

BANK ALFALAH LIMITEDThe banker must be aware of the nature of the property i.e. whether the

commodity is a perishable item. Also the commodity being pledged should be easily saleable, so that in case of default of client, bank can easily sell it in the market.

Client:

In case of pledge, godowns are in the premises of the clients under the custody of Mucaddams, whose honesty can be brought at any time. Therefore greater risk is imposed by the client. So the bank must be satisfied with the honesty and credibility of the client.

Market Awareness:

A banker must have market awareness e.g. fluctuation in prices. Such commodities should not be pledged that might have low demand in market and have many risks attached to it.

Suitability of Godown:

Suitability of godown depends upon the nature of the commodity. Banker must be fully satisfied with the appropriation of the Godown.

Proper Valuation:

Whenever goods are pledged, the banker should be aware of the true cost of the product as the client always overvalues his product. Sales taxes, excise duties are also paid on the finished goods.

Insurance:

The goods offered for security must be properly insured. Banker must analyze all the associated risks of the goods. So, to cover these risks banker should decide about the insurance of the commodity.

Mortgage:

In mortgage, immovable assets are offered as security. Mortgage means, to surrender the proprietary rights of the property. The transferor of property is called a mortgagor and the transferee (bank) is called a mortgagee.

Usually two types of Mortgages are being created in the bank for the purpose of collateral.

• Equitable Mortgage

• Registered Mortgage

Equitable Mortgage (E/M):

BANK ALFALAH LIMITEDWhen a mortgage deed is attached with the title documents only and is deposited

in the bank, it is known as “Equitable Mortgage” or “Mortgage by deposit of title deed”. It is the most common form of the mortgage created in bank.

1-Registered Mortgage (R/M):

When the mortgage deed is between the bank and the client is registered, it becomes a registered mortgage. Mortgage deed is registered with the Registrar of the Companies. It is an expensive mortgage and is created when the title documents are weak or the client is not much trustworthy.

Precautions:1-Nature and value of the property:

The banker satisfy themselves that whether the property is suitable for security purposes and in case of sale the bank will not suffer any loss. For this purpose, the bankers inspect the property and properly visit report is prepared. Also the bankers hire the services of different valuators to assess the right value of the property.

2-Investigation of Title:

The banker must be satisfied that his borrower has a good title to the property. The bankers, therefore, conduct a proper investigation into the borrower’s title to the property, through their own legal advisors.

3- Search for Prior Charges:

A search is made (with registrar of companies), to ensure that there exists no prior charge on the property. If the title deeds of the property are in the name of more than one person, search should be directed against the name of each person through whom the title is made. For this purpose, the bank also gets fresh NEC i.e. Non-Encumbrance Certificate, issued by the registrar indicating that no lien or charge has been created on property being mortgaged, upto a specific date.

After a banker is satisfied with the property offered for security, mortgage against his property is created through “Mortgage Deed”. For this purpose, the original title documents are deposited in the bank with the mortgage deed. Along with the title documents of property, the bank requires:

• Memorandum of Deposit of the Title Deed

• Agreement to create Mortgage

• General Power of Attorney (Registered)


Hypothecation:

When an immovable property is offered for security against credit but both the ownership and possession is left with the borrower, the goods are said to be “Hypothecated”. Securities like machinery, stock etc. are offered for hypothecation. Lending against hypothecation of goods is very risky. The control of bank is weak so greater risk is involved in hypothecation.

In case of hypothecation the banker reserves the right to inspect the goods hypothecated to him and can ask for periodic stock reports, where necessary.

The banker, for his protection, may ask the borrower to insure. The banker may himself do so and recover the expenses from the borrower.The banker may ask the borrower to maintain a balance of goods sufficient to fulfill the margin requirements.

For the creation of hypothecation, the bank gets the letter of hypothecation signed by the client. This deed is got registered in case of both public and private limited companies, with the Registrar of Companies (SECP).

1-Charge:

Charge means the legal right on the assets of the person (company). In case of limited companies, banks generally create their charge on the assets of the company, as security. The charge is registered with the Registrar of the companies (SECP).

Charge is of many types:• First Charge

• Second Charge

• Pari Passu Charge

a) First Charge:

The bank that has the first charge means that it has the first right on the assets of the company in case of liquidation. If other banks also have charge against that asset then they have second charge after the first one.

b) Second Charge:

Second charge means that the bank has the second right on the assets of the company, and then afterwards third charge, fourth charge and so on have the right.

c) Pari Passu Charge

BANK ALFALAH LIMITEDPari Passu charge means that all the banks who have involved in the Pari Passu

charge have the equal rights. Pari Passu charge can be created for the first charge, or for the second or so.

2-Lien on Documents:

Like charge, bank creates its lien on the documents in its possession, as security. For example, in case of import transaction under L/C, bank creates lien on import documents. 3-Guarantees:

Along with other securities, bank may rely on other guarantees like other bank guarantees, to protect himself against the advances.

Processing of Loan

The banker must be very careful and ensure that his depositor’s money is advanced to safe hands where risk of loss does not exist. When a customer requests his banker to facilitate him with different credit facilities, the banker first assesses the credibility of customer and the market conditions.

The elements of credibility, integrity, repayment, and market conditions help a banker in arriving at a conclusion regarding the safety of advances.

Credibility:

It is the most important factor in determining the safety of advances, for there is no substitute for integrity, honesty and trustworthiness. A borrower’s character can indicate his intention to repay the advance, since his honesty and integrity is of primary importance. If the past record of the borrower shows that his integrity has been questionable then the banker usually tries to avoid such a customer.

Repayment:

This is the management ability factor, which tells how successful a business has been in the past, and what are the future possibilities are. Before advancing loan a banker must be satisfied with the sources of the repayment of the funds.

Capital:

The bankers also check the capital of the borrower. This can be kept as a security of a loan. In other words, if the businessman financial Position is sound, only then he can be lended.

CIB Report:

Bank cannot sanction any loan to a customer, until and unless it gets credit report form CIB (Credit Information Bureau, SBP). Before making any decision about the client, bank needs a CIB report. Therefore, first of all the bankers requests CIB to provide

BANK ALFALAH LIMITEDthe credit report of the client. This report indicates all the credit facilities outstanding (availed) by the client.

Credit Line Proposal (CLP):

After being satisfied with the credibility and integrity of the applicant, the processing of loan application starts with the preparation of Credit Line Proposal (CLP). It has the vital and most important task assigned to the credit officers in BAL.

In a CLP, every information regarding the client and his business is stipulated as follows:

• Total existing facilities (limit), their outstanding value and the securities that were

provided against these facilities.

• Total proposed limit of credit and the securities provided against it. The credit

officer does the analysis and verification of these securities

.Business on OTT basis:

Client may conduct a business with bank on OTT (One Time Transaction) basis. When a client wants his banker to facilitate him with a certain credit only for a single transaction, then he would ask for OTT limit of credit facility. For example, in case of OTT limit for SLC, credit facility expires with the completion of L/C cycle.

Regular Credit Limit:

But if the client wants to route a regular business with the bank, then he requests for regular credit limit of credit facilities for a specific period. Following things should be undertaken while preparing a CLP and also being mentioned in the CLP.

• Customer’s background, his relationship with the bank (if he is an existing

customer), his relationships with other banks.

• Purpose of facility and terms and conditions regarding the client.

• Nature of his business and what are the market conditions and opportunities fro

the business.

• Reciprocal business is also stipulated on the proposal, which means expected

business that would be routed through the bank for these facilities. Bank

calculates his profitability on the basis of this business.

Financial Analysis:

BANK ALFALAH LIMITEDFinancial Analysis of the business of the customer constitutes the most important

part of a proposal. Banker makes an analysis on liquidity, leverage and profitability of his business.

Finally along with other information banker must himself gives his comments and recommendations for the proposal.

HOME FINANCE

In home finance department I worked with Mr.Ali and learnt that:

• Home finance is term loan facility repayable in monthly installments and secured

by equitable or registered mortgage over real estate property

• Purpose of facility is to finance purchase, construction, improvements, extension

and restoration of private residential or commercial real estate property

• It shall be extended for all types of real estate properties i.e. houses, apartments,

bunglows, town houses, office premises etc

• Target customs are individuals (self employees, businessmen, salaried) including

permanent staff of BAL

TYPES OF HOME FINANCE

• Alfalah home buyer (3-20 years)

• Alfalah home construct (3-20 years)

• Alfalah home improvement (3-10 years)

• Alfalah home start (3-10 years)

• Alfalah balance transfer facility (3-20 years)

CAR FINANCE DEPARTMENT

BANK ALFALAH LIMITEDCar finance department is responsible for providing cars to both individuals and

corporates and hence there are two types of products in this department

• Car Finance

• Auto Lease

•

The procedure for loan disbursement for leasing, home finance and car finance is same as discussed above.

FOREIGN TRADE DEPARTMENT

In this department I worked with Mr. Zahid Rasool and learnt that trade deals with the entry/departure of goods into/from one country to another country. International Trade is basically a consequence of an agreement between a buyer and seller separated by geographical boundaries.

To ensure secure transfer of goods to the right buyer and payment to the right seller, the services of financial institutions are very important, which have contracts and roots in both countries become indispensable.

The banks act as Authorized Dealer of the Government of Pakistan, serve four purposes in trade. These are:

They use their reputation to give credibility to their customer, who may be unknown in another country.

They check the validity of the trade agreement al along spotting and then informing their customers of any deviation and discrepancy as regards the requirements of the agreement.

They act as post offices, so as to lend validity to correspondence between the importer and exporter.

They serve as moneychangers by dealing in the relevant currencies in the relevant countries, allowing exporters to receive payment in their own currency and importers to pay in their own.

Just as trading customers are interested in goods and not the documents, banks are interested in documents and not goods. Banks see goods in their documents, not in the shipyard. If the documents say the goods are fine, the bank accepts them as so, even though the goods may, in reality be damaged or totally non-existent. Therefore, preparation, transfer and perusal of documents command the greatest importance for banks.


EXPORT DEPARTMENT

Here I learnt about:

• Procedure of registration as an exporter

• Documents needed for export

• Form “E”

• Checking of documents

• Exchange control regulation

• How to make foreign documents bills for collection

• How to make export payment realization certificate

• How to fill covering letter

• Mode of payment

This dept provides two types of services. One is that it according to SBP, registers contracts between Pakistani Exporter and foreign importer. Foreign bank issues LC (Letter of Credit) in the name of importer to the bank of advising bank on the basis of Performa invoice or quotation submitted by importer. This Department scrutinizes and advises the LC to its client, “the Exporter”. Exporter files an application for export purpose, bank issues an E-FORM to exporter in which complete detail of goods description, quantity, terms of sale, and destination name and address of both parties are documented. This LC obliges the advising bank to send the documents as per requirements. LC is basically the undertaking of the bank on behalf of exporter to reimburse the draft to the beneficiary. In this case, banks liability gets high. Advising bank send documents to the importers bank which in turn are given to importers bank who can receive their shipment on getting documents from the bank after paying at sight. When importer pays to bank, it withholds service charges and then transfer funds through Reimbursement banks i.e. ABN Amro, Citi Bank to advising bank who further pays to exporter after charging their service dues.

Letter of credit requires the following documents:

Bill of Lading:

BANK ALFALAH LIMITEDThis is issued by shipping lines, demonstrates the evidence of promised goods

have been shipped with stated number of quantity. Importer is obliged to receive his shipment on the presentation of this bill of lading to their home shipping lines.

Bill of Exchange:

This bill is passed on the agreement between both parties on due payment dates, shipment dates or any negotiation case (if any).

Packing List:

In packing list, exporter enlists the product description, total no of carton and total gross Weight etc.

Commercial Invoice:

This invoice is issued by the co. in which it notifies the applicant of importer about the rate per unit and total cost of goods exported.

Covering Schedule:

This covering schedule is dispatch on the above of all documents to be sent to foreign bank. This contains all the accumulated information, negotiated against the letter of credit.

Insurance certificate:

Importers prefer insurance certificate of commodities to avoid any sort of risk. In the export of food commodities, the following documents are required:

• Certificate of Origin

• Fumigation certificate

• Philtosanitory/ health certificate.

Status for Exporters:

The exporter has to fulfill the following conditions:

• The person must be an account holder of BAL.

• No one can export any commodity until and unless he is a Pakistani National and

also has a valid registration with Export Promotion Bureau (EPB).

• The person must possess a valid membership certificate of Trade organization,

licensed and recognized by Federal Government like Chamber of Commerce (e.g.

Lahore Chamber of Commerce)

• The person must possess a valid NTN (National Tax Number) certificate.

BANK ALFALAH LIMITED• A person cannot export any good unless he files an E form (E stands for Exports)

with his application to the bank. All specifications stipulated on the form must be

met.

• The person must have the Sales Tax Registration Certificate.

E-Form:

E stands for exports. E-Form is a basic requirement to be fulfilled by an exporter. E-Form is a very sensitive document. Bank does not give this form to any person before filling of basic from which contains the information about his business, nature of business, his name address, and some documents have to be attached with the form to get E-form. These documents include:

• Certified copy of letter of authority, if E-form is signed by other than

proprietor/directors/partners on behalf of the company.

• Copy of ID cards of the proprietor/directors/partners and authorized persons

• Export registration certificate

• Lahore Chamber of Commerce Certificate

• National Tax number

E form contains the following details:

• Goods (with full details and quantity as identifiable with report)

• Quantity (bales, bundles, pieces)

• Invoice value of Goods (state currency and terms CIF, C&F, FOB)

• Terms of sales

• Port /Station country of departure

• Name and address of the Importer

• Name of carrying steamer/air co./truck co./railways

• Value declared in document

• Port of shipment

BANK ALFALAH LIMITEDAfter filling the complete information about the goods to be exported, the exporter

brings E-Form to the bank for verification. The bank verifies the contents in accordance with the documents and not by physical checking.

After getting the E-form verified from bank, the exporter starts preparing for the shipment. As the bank only deals in documents, so in order to receive the payment for his goods to be exported, the exporter has to send certain documents to the L/C issuing bank via negotiating bank.

A very important step is to scrutinize the documents, before sending them to the issuing bank. It requires utmost care of the bank officer. When the documents are presented in the bank, they are always scrutinized and they must be in accordance with the requirements stipulated on the L/C. Any deviation could result in rejecting the documents by the importer, hence causing loss to the exporter or even to the bank if the documents are to be negotiated.

IMPORT DEPARTMENT

In import department I learnt about:

• Issuance of import registration certificate

• Parties of L/C

• Letter of credit opening procedure

• Types of L/c

• Import license (registration of import in EPB)

• Import bill

• Checking an scrutinizing of documents

• Mode of payment

The Second section of trade finance department is Import. This department is responsible to assist the importers in foreign trade by providing finances and guarantees.


This import department registers the contract between Pakistani importer and foreign exporter under law of State Bank of Pakistan circular 56. An importer submits the proforma invoices with contract. Besides contract the most widely provided service is issuing letter of credit. Letter of credit is responsibility of the bank on behalf of the importer to secure all trade process in against the exporter.

Once the importer files an application for trade purpose, the security evaluation of his application is done by the credit department to analyze whether the shipment worth the advances or not. On the approval, Importer is assigned a LC code and a PAD number. The bank sends the approval of an LC in the name of importer to the Advising Bank (Exporters bank). Exporters bank sends all the documents negotiated in LC to importers bank. Once the shipment arrives in importing country, documents are kept with the bank until the importer makes full payment to bank.

Letter of Credit

The letter of credit is today the foremost way of financing international trade. In simple words, a letter of Credit (L/C) can be defined as:

“A bank’s written undertaking given to the exporter for payment of a certain sum of money on behalf of the importer provided the exporter tenders to the bank or its

overseas agents, the specified documents within a specified period in accordance with the terms of the undertaking”.

Advantages of L/C:

Following are some of the main advantages of a letter of credit:

• Since a letter of credit is opened only fro the importers with established credit

standing, the exporter is sure of receiving the price of his commodity.

• An exporter may obtain necessary finance immediately on shipment under a letter

of credit (through negotiation or OD buying).

• A letter of credit may help the importer to meet its financial difficulties. He may

obtain some finances against the L/C (Like FIM, FATR etc).

• Similarly, an L/C enables the exporter to obtain finances from his bank, for the

operations of production even before shipment (Pre-Shipment finance).

Following Banks are involved in letter of credit:


• Issuing Bank (Opening Bank)

• Reimbursing Bank

• Advising Bank

• Negotiating Bank

• Intermediary Bank

Issuing Bank (Opening Bank):

Issuing bank is the bank, which opens the L/C on behalf of the importer. This bank’s undertaking under an irrevocable L/C is absolute. Therefore, once the L/C has been communicated to the beneficiary through the bank, it has no option, but to pay, provided the other terms and conditions have been fulfilled.

Reimbursing Bank:

Monetary transactions between both parties are taken place by reimbursement bank. These banks are Citi Bank and ABN AMRO. Foreign bank transfers advising bank’s funds through these banks. Three types of accounts are utilized in these transactions:

• NASTRO: our account with others

• VASTRO: others account with ours

• LORO: others account with them

Advising Bank:

The bank that advises the L/C means who physically delivers the L/C to the exporter on behalf of the issuing bank. It is a correspondent bank of the issuing bank situated in the beneficiary’s country or it can also be a branch of issuing bank.

Negotiating Bank:

Negotiation is actually an exchange of value of draft. In this case, exporter negotiates with bank to extend the due date because of unavailability of funds when importer is obliged to pay the exporter. Bank pays to advising bank on behalf of importer and agrees to charge the markup on funds when importer will pay. Bank pledge some property worth of advances.


Intermediary Bank:

Intermediary bank is that where the negotiating bank has its Nostro Account and who obtains reimbursement against L/C from reimbursing bank and gives credit to the negotiating bank. For dollar payments, intermediary bank would have to be situated in USA. Similarly, for transactions in GBP, both the Reimbursement and Intermediary banks would be in UK.

Terms for an Importer to get an L/C:

A letter of Credit cannot be opened on behalf of the importer unless he fulfills the following requirements:

• The person must be an account holder of BAL.

• No person can be an importer without first being registered with EPB. So the

person must have valid import registration with Export Promotion Bureau (EPB)

of Pakistan. This registration is not necessary fro those who have been exempted

from it.

• The person must process a valid membership certificate of Trade Organization,

licensed and recognized by Federal Government like a Chamber of Commerce

(e.g. Lahore Chamber of Commerce)

• The person must possess a valid NTN (National Tax No) certificate.

• The person must have the Sales Tax Registration Certificate.

L/C Application Form:

After having an approved L/C limit, the process of L/C opening starts with L/C Application form. The bank has prescribed a standard application form that contains the required guidelines, instructions and other relevant terms and conditions under which the L/C is to be opened and claims from the beneficiary are to be settled.

The application form contains the following:

• Description of the goods, detail of quantity, unit price, total price and currency of

detail.

BANK ALFALAH LIMITED• Instructions about the advice of credit, whether it should be sent by airmail, by

courier or telecommunicated.

• Form of credit: Whether revocable or irrevocable, confirmed or unconfirmed. Due

to permission of irrevocable credit only, it is prescribed on from.

• The name and address of the beneficiary.

• Type of Credit: Whether sight, usance etc.

• Validity period of credit and last dates for shipment and negotiation.

• Port of shipment and port of destination and whether trans-shipment and/or part-

shipment are allowed.

• Types and number of sets of documents required to be submitted by the exporter.

• The application form is a formal contract between the issuing bank and the

applicant; therefore, it is signed by the customer, who by doing so undertakes to

abide by the terms and conditions of L/C, mentioned in the application form.

Documents Required for Import:

Performa Invoice:

The Performa invoice is the quotation of goods to be imported. It contains the description of goods and their price.

Insurance Certificate:

A certificate of insurance of the goods to be imported is also required by the bank in order to minimize the risk that it undertakes.I” Form:

The “I” form is an important document containing the information about the importer, exporter, the goods to be imported, the mode of shipment and etc. Its copies are sent to the State Bank of Pakistan so that a record can be kept.

Bill of Lading:

This is issued by exporter’s shipping lines, demonstrates the evidence of promised goods have been shipped with stated number of quantity. Importer is obliged to receive his shipment on the presentation of this bill of lading to their home shipping lines.

Bill of Exchange:

BANK ALFALAH LIMITEDThis bill is passed on the agreement between both parties on due payment dates,

shipment dates or any negotiation case (if any).

Packing List:

In packing list, exporter enlists the product description, total no of carton and total gross Weight etc.

Commercial Invoice:

This invoice is issued by the co. in which it notifies the applicant of importer about the rate per unit and total cost of goods exported.

Covering Schedule:

Along with the above stated documents, the negotiating bank sends it’s covering Schedule on which the instructions regarding the whole transaction are prescribed. It also mentions the number of each document sent by the exporter. The number of each document depends upon the instructions of importer mentioned on L/C.

This covering schedule is dispatch on the above of all documents to be sent to foreign bank. This contains all the accumulated information, negotiated against the letter of credit.

Indent:

When the importer and exporter don’t have direct relations and are connected to each other through an intermediary, called Indenter, then he issues an indent form containing all terms and conditions.

Mode of Payment

1. Sight L/C:

If the beneficiary of a credit is to obtain payment immediately on presentation of stipulated documents, it is a Sight L/C.

Example: An L/C opened by BAL for I (importer) in favor of E (exporter), requires I to pay for the goods, as soon as he sight the title documents or takes possession of them. That is when the exporter’s documents reach BAL’s desk, BAL after checking for discrepancies presents the documents to I. After satisfactory perusal from I’s part, BAL gets I to sign the bill of Exchange, I is then asked to make payments for the goods than BAL lets him to take possession of the documents.

BANK ALFALAH LIMITED2. Usance L/C:

When a credit stipulates payment to the beneficiary upon the maturity of a bill of exchange drawn under the terms of the credit, it is an ‘acceptance credit’, ‘term credit’ or ‘usance credit’.

In this form of credit the beneficiary draws a draft for a particular usance (e.g.30, 60, or 90 days etc,), payable upon either the correspondent bank or the issuing bank.

Example: If L/C says “payment to be made 90 days from bill of lading date” or any similar statement, this implies a usance period. After 90 days from bill of lading date, Citi Bank NY (exporter’s bank) will debit BAL Nostro account and remit payment to E. Meanwhile, in Lahore on arrival of documents, BAL will get I to sign the bill of exchange, drawn on BAL, calling for payment on the due date.

Documents are then released to I so he can get the possession of goods. After 90 days, if I refuse to pay, BAL is responsible for it.

Lodgment of Documents in PAD (For sight L/C’s only):

After all the documents are scrutinized carefully, documents are lodged in PAD (payment Against Documents). For this purpose, the documents are stamped with PAD for a specific PAD number and entered into the register by the total amount. Exchange rate (selling) approved by the BAL treasury (fro that day) is charged.

When the documents are lodged in PAD, L/C becomes a fund-based facility. Until the party does not make the payment, PAD remains outstanding and the bank keeps the documents in its safe custody. Record of every information regarding PAD is mentioned in the PAD register.

A PAD register contains:

• Date of Lodgment of PAD

• PAD number

• Importer’s name

• Invoice price in Foreign Currency

• Invoice price in Foreign Currency

• L/C margin (if any)

• PAD amount

• Name of vessel

BANK ALFALAH LIMITED• Date of Retirement of Documents

Retirement of Documents:

The whole transaction of foreign trade in which an L/C is involved, completes with the retirement of documents.

The documents that are first lodged in PAD are retired when the importer pays the total amount (payable). This amount includes the PAD plus the mark-up charged on PAD and other charges (mentioned on cost memo). Upon receipt of payment, when the documents are retired, they are given to the importer and he gets the consignment cleared from custom authorities (by submitting the Bill of Entry).

Shipping Guarantee

Sometime, it so happens that the consignment reaches the port in the importer’s country but the bank has not received the documents.

Since, the importer needs original bill of lading and commercial invoice to get his consignment cleared, through the bill of entry. Whereas these documents has not reached the bank and without these, the importer cannot claim possession of the consignment. So the bank, in such case, issues a shipping guarantee. Bank does so against a certain margin, which should be 110%.

Short Term Financing Facilities

Finance Against Imported Merchandise (FIM):

Finance against Imported Merchandise (FIM) is a credit facility provided to the customer, in L/C transaction. In FIM, bank itself makes the payment to the exporter and the goods are kept in the possession of bank. Delivery order (DO) is issued by the bank for every time, when the importer makes the payment, goods are transferred in the possession of importer.

Finance Against Trust Receipt:

The bank also offers credit facility FATR, against sight L/C’s, like FIM. Contrary to FIM, goods are given in the possession of importer. This facility is provided to the customer having a credit rating A+.


FINANCIAL STATEMENT

ANALYSIS

Financial Statements

Trend/horizontal analysis

Vertical analysis

Financial Ratio analysis


Bank Alfalah LimitedBalance Sheet

2004-2003

Particulars 2004 2003

Assets Cash and balances with treasury banks 19,708,518 8,423,399Balances with other banks 3,183,957 626,917Lending to financial institutions – 7,437,733Investments 35,503,196 28,903,596Advances - net of provision 88,931,400 49,216,120Operating Fixed Assets 4,280,504 2,791,626Other Assets 3,226,959 1,553,108

154,834,53

4 98,952,499 Liabilities

Deposits and other accounts129,714,89

1 76,698,322Borrowing from other banks, agents etc. 12,723,830 13,127,754Bills Payable 2,233,671 1,208,671Other Liabilities 2,725,344 2,186,754Deferred Liability - Staff retirement gratuity 275,834 323,010Subordinate Loans 1,899,480 649,740

149,573,05

0 94,194,251Net Assets 5,261,484 4,758,248 Represented By Share Capital 2,500,000 2,000,000Reserve funds and other reserves 1,008,772 790,374Unappropriated profit 860,300 963,042 4,369,072 3,753,416Surplus on revaluation of fixed assets 892,412 1,004,832 5,261,484 4,758,248


Bank Alfalah LimitedIncome Statement

2004-2003

Particulars 2004 2003Mark-up / return / interest earned 5,620,203 4,033,380Mark-up / return / interest expensed 2,434,459 2,028,577 Net mark-up / interest income 3,185,744 2,004,803Provision against non-performing loans and advances - net (370,208) (87,091)Provision for diminution in the value of investments (2,165) –Bad debts written off directly (351) (418)

(372,724) (87,509)Net mark-up / interest income after provisions 2,813,020 1,917,294

NON MARK-UP/INTEREST INCOME

Fee, commission and brokerage income 675,868 399,383Dividend income 52,539 112,017Income from dealing in foreign currencies 218,820 106,848Other income 572,822 2,773,503 Total non-mark up / interest income 1,520,049 3,391,751 4,333,069 5,309,045

NON MARK-UP/INTEREST EXPENSES Administrative expenses 2,677,635 1,799,490Provision against non-performing advances – 2,000Other charges 1,700 1,875Total non-mark up / interest expenses 2,679,335 2,679,335 PROFIT BEFORE TAXATION 1,653,734 3,505,680 Taxation-Current 586,159 1,364,723 -Prior (30,000) 22,887 -Deferred 9,249 8,507 561,745 1,382,446PROFIT AFTER TAXATION 1,091,989 2,123,234


Bank Alfalah LimitedBalance Sheet

2005-2004

Particulars 2005 2004

Assets Cash and balances with treasury banks 24,788,625 19,708,518Balances with other banks 9,713,369 3,183,957Lending to financial institutions 27,050,493 -Investments 57,425,700 35,503,196

Advances - net of provision118,864,01

0 88,931,400Operating Fixed Assets 6,620,067 4,280,504Other Assets 3,851,529 3,226,959

248,313,79

3 154,834,534 Liabilities

Deposits and other accounts222,345,06

7 129,714,891Borrowing from other banks, agents etc. 5,844,389 12,723,830Bills Payable 3,733,124 2,233,671Other Liabilities 5,219,666 2,725,344Deferred Liability - Staff retirement gratuity 275,834 323,010Subordinate Loans 1,899,480 649,740

240,849,66

7 149,573,050Net Assets 7,464,126 5,261,484 Represented By Share Capital 3,000,000 2,500,000Reserve funds and other reserves 2,351,218 1,008,772Unappropriated profit 1,386,845 860,300 6,738,063 4,369,072Surplus on revaluation of fixed assets 726,063 892,412 7,464,126 5,261,484


Bank Alfalah LimitedIncome Statement

2005-2004

Particulars 2005 2004Mark-up / return / interest earned 12,246,811 5,620,203Mark-up / return / interest expensed 7,204,992 2,434,459 Net mark-up / interest income 5,041,819 3,185,744Provision against non-performing loans and advances - net (402,298) (370,208)Provision for diminution in the value of investments 23,163 (2,165)Bad debts written off directly (512) (351)

(379,647) (372,724)Net mark-up / interest income after provisions 4,662,172 2,813,020


Fee, commission and brokerage income 1,158,747 675,868Dividend income 52,014 52,539Income from dealing in foreign currencies 290,091 218,820Other income 744,518 572,822 Total non-mark up / interest income 2,245,370 1,520,049 6,907,542 4,333,069

NON MARK-UP/INTEREST EXPENSES Administrative expenses 4,313,023 2,677,635Provision against non-performing advances 10,125 -Other charges 21,104 1,700Total non-mark up / interest expenses 4,344,252 2,679,335 PROFIT BEFORE TAXATION 2,563,290 1,653,734 Taxation-Current 592,635 586,159 -Prior 267,524 (3,663) -Deferred (7,000) (30,000) 861,196 561,745PROFIT AFTER TAXATION 1,702,094 1,091,989


Trend/Horizontal AnalysisBank Alfalah Limited

Trend AnalysisBalance Sheet

2005-2004

% ChangeParticulars 2005 2004

Assets Cash 21.19 133.92Balances with other banks 54.82 200.73Money at call and short notice 790.00 -59.68Investments -0.51 46.573Advances - net of provision 47.59 33.123operating Fixed Assets 6.72 337.37Other Assets -12.12 3.8581 31.20 46.774 Liabilities Deposits and other accounts 29.46 33.189borrowing from other banks, agents etc. 56.08 120.44Bills Payable -12.01 133.62other Liabilities 67.71 111.09Deferred Liability - Staff retirement gratuity -2.87 -6.865 34.03 43.314Net Assets -0.47 101.01 Represented By Share Capital 0.00 0Reserve funds and other reserves 4.56 12.272Unappropriated profit -86.44 140.6Shareholder's Equity 0.60 4.2529Surplus/(deficit) on revaluation of investments - - -0.91 4.2529Surplus on revaluation of fixed assets 0.00 - -0.47 101.01


Comments:

The trend analysis is also called the horizontal analysis. The trend analysis of an

organization gives a picture of all the financial strengths and weaknesses of the business.

Assets:

The level of cash with the bank rose sharply in the year 2004also increases in the year

2005.In 2004the level of cash in hand in local currency increased and took he level of

cash up with them.

The balances with other banks also rose tremendously in the year 2004. Mainly there was

a major increase in the deposit accounts outside Pakistan which rose the percentage.

Call money is a highly volatile account and its increase or decrease does not signify

much. According to the Balance sheet, in the year 2004it fell by 59% but then in 2005 it

rises by 790%.

The bank’s investment does not show any significant change in the year 2005 but in 2004

it rises by 47%, which was mainly because of the investment in FIB, T-Bills and prize

bonds.

The Advances of the bank increases consistently. This is a very good sign for the bank

and it also shows that the business of the bank is growing. The increase in the level of

advances has also led to an increase in the mark up income received.

Operating fixed assets of the bank rises immensely in the year 2004, which shows that the

bank is in its growing stages. It also shows a meager increase in the year 2005.

The total assets of the bank increased by 46% in 2004 and 31% in the year 2005

signifying an increase in the business of the bank.

BANK ALFALAH LIMITEDLiabilities:

The deposits of the bank are increasing steadily and consistently in the previous years.

Increasing trend in the deposits is a very encouraging trend for the bank.

Borrowings from other banks have been on the rise too. There was 120% increase in

2004 . This shows that the bank is a regular borrower from the inter bank money market.

Rather than going for deposits, it finds it easier to borrow from the money market. This is

having an adverse effect on the bank’s cost of capital.

The total liabilities of the bank rise in the recent years but the increase matches the

increase in the assets so it is not alarming for the bank.

Equity:

The total equity includes the reserves, as well as the assigned capital and the unremitted

profit. The total amount is increasing through 2003. But the difference is not much.


Bank Alfalah LimitedTrend Analysis

Income Statement2003-2005

% ChangeParticulars 2005 2004Mark up/interest & discount/return earned 18.51 17.26less: Cost/return on deposits, borrowings 16.94 12.24 23.88 38.38Fees, commissions and brokerage 78.90 47.18Profit from investment securities 42.23 312.32Dividend Income - -Other Operating Profit 21.63 -6.16 45.83 13.10 30.49 29.65Operating Expenses Administrative expenses 25.01 19.30

Provision against non-performing advances -23.61-243.61

Bad debts written off directly - -Provision for other Losses - - 52.60 -38.30 13.69 695.28 Other Income -59.69 -85.08Profit before taxation 12.96 423.23 Taxation-Current -22.73 -45.70

-Prior198.31 -

-Deferred419.78

-107.57

-6.51-354.92

Profit after Taxation 37.58 7.68


Comments:

Increase in Total revenue:

Year Total Revenue Change % Change2003 1789889 - -2004 2091893 302004 16.872005 2529896 438003 20.94

The figure of Total Revenue includes the markup earned, the fees, commissions and

brokerage earned, profit from investment securities, Dividend income, and other

operating income. The other operating income has been include in total revenue as it also

includes the income of the bank from dealing in foreign currencies and some of the

charges the bank receives.

The total revenue has been increasing. This is a positive sign for the bank which shows

that the bank is growing every year and also enjoying high profit every year.

Cost / Markup Paid:

The movement in the cost and markup paid is along with the movement in the total

revenue. The increase in revenue has been in a higher percentage as compared to the

increase in the cost. This is a very encouraging feature for the bank.

Administrative Expenses:

The administrative expenses have been on the rise consistently. This is not a bad sign and

shows the expansion of the bank’s business but only if the deposits have also been

increasing along with the expenses.

The total deposits increased in the year 2004 and 2005 followed by the increase in the

Administrative expenses and there is no significant change in both of them.


Vertical AnalysisBank Alfalah Limited

Balance SheetVertical Analysis

2005-2004

% changeParticulars 2005 2004

Assets Cash and balances with treasury banks 99.8 12.72Balances with other banks 3.9 2.05Lending to financial institutions 10.8 -Investments 23.12 22.93Advances - net of provision 47.86 57.4Operating Fixed Assets 1.55 2.08Other Assets 2.6 2.76 100 100 Liabilities Deposits and other accounts 89.54 83.77Borrowing from other banks, agents etc. 2.35 8.2Bills Payable 1.50 1.44Other Liabilities 5,219,666 2,725,344Deferred Liability - Staff retirement gratuity 275,834 323,010Subordinate Loans 1.29 1.22 97 96.6Net Assets 3 33.98 Represented By Share Capital 1.2 1.6Reserve funds and other reserves 0.94 0.65Unappropriated profit 0.55 0.55 2.71 2.82Surplus on revaluation of fixed assets 0.29 0.57 3 33.98


Comments:

The vertical analysis is calculated by dividing each item with the total assets of the

particular year

Assets:

The level of cash with the bank rose sharply in the year 2004also increases in the year

2005.In 2004the level of cash in hand in local currency increased and took he level of

cash up with them.

The balances with other banks also rose tremendously in the year 2004.

The bank’s investment does not show any significant change in the year 2005 but in 2004

it rises by 23% which was mainly because of the investment in FIB, T-Bills and prize

bonds.

The Advances of the bank decreases

This is not a very good sign as it shows that the business of the bank is going downwards.

The decrease in the level of advances has also led to a decrease in the mark up income

received.

Operating fixed assets of the bank rises immensely in the year 2004, which shows that the

bank is in its growing stages. But It shows a meager decrease in 2005


Liabilities:

The deposits of the bank are increasing steadily and consistently in the previous years.

Increasing trend in the deposits is a very encouraging trend for the bank.

Borrowings from other banks have been on the decrease which is good sign that bank is

able to fund its activities itself and doesn’t need any financial need from other banks or

institutions.

The total liabilities of the bank rise in the recent years but the increase matches the

increase in the assets so it is not alarming for the bank.

Equity:

The total equity includes the reserves, as well as the assigned capital and the unremitted

profit. The total amount is increasing through 2003. But the difference is not much.


Bank Alfalah LimitedIncome StatementVertical Analysis

2005-2004 % changeParticulars 2005 2004Mark-up / return / interest earned 242.9 176.4Mark-up / return / interest expensed 142.9 75.4 Net mark-up / interest income 100 100Provision against non-performing loans and advances - net (7.9) (11.6)Provision for diminution in the value of investments (0.45) (10.067)Bad debts written off directly (0.01) (0.01)

(5.22) (6.72)Net mark-up / interest income after provisions (7.52) (11.6)


Fee, commission and brokerage income 22.98 21.2Dividend income 1.03 1.64Income from dealing in foreign currencies 5.75 6.86Other income 14.76 17.98 Total non-mark up / interest income 44.53 47.71 137 136

NON MARK-UP/INTEREST EXPENSES Administrative expenses 85.54 94Provision against non-performing advances 0.2 -Other charges 0.4 0.05Total non-mark up / interest expenses 86.16 84.10 PROFIT BEFORE TAXATION 50.84 51.9 Taxation-Current 11.75 19.39 -Prior 5.80 (0.11) -Deferred (0.138) (0.84) 17.08 17.63PROFIT AFTER TAXATION 33.75 34.27

BANK ALFALAH LIMITEDComments:

The figure of Total Revenue includes the markup earned, the fees, commissions and

brokerage earned, profit from investment securities, Dividend income, and other

operating income. The other operating income has been include in total revenue as it also

includes the income of the bank from dealing in foreign currencies and some of the

charges the bank receives.

The total revenue has been increasing. This is a positive sign for the bank which shows

that the bank is growing every year and also enjoying high profit every year.

Cost / Markup Paid:

The movement in the cost and markup paid is along with the movement in the total

revenue. The increase in revenue has been in a higher percentage as compared to the

increase in the cost. This is a very encouraging feature for the bank.

Administrative Expenses:

The administrative expenses have been on the rise consistently. This is not a bad sign and

shows the expansion of the bank’s business but only if the deposits have also been

increasing along with the expenses.

The total deposits increased in the year 2004 and 2005 followed by the increase in the

Administrative expenses and there is no significant change in both of them.


Financial Ratio AnalysisNET PROFIT MARGIN

= Profit after Taxation * 100 Total Revenue2005= 215,350 * 100 2529896 = 8.51 %

2004= 156524 * 100 2091893 = 7.48 %

2003= 145365 * 100 1789889 = 8.12 %

The net profit margin is a profitability ratio which shows the combined effects of

liquidity, asset management, and debt on operating results. For the year 2005, the net

profit margin of the bank shows an increasing effect which is encouraging for the bank

RETURN ON EQUITY

Net Profit Margin

2005

20042003

6

78

9

Years

%

20052004

2003


= Net Profit (Profit After taxation) * 100 Paid Up Capital + Reserves

2005 = 215,350 * 100 899469

= 24 %

2004 = 156524 * 100 886399

= 17.66 %

2003= 145365 * 100 855094

= 17 %

The return on equity shows the return the owners of the business enjoy after paying all

the financial expenses and other liabilities of the business. The return on equity keeps on

increasing for the past three consecutive years which is a very healthy trend for the bank.

RETURN ON INVESTMENT

Return on Equity

2005

2004 2003

0

10

20

30

Years

%

2005 2004 2003


= Net Profit + Cost / Return on Deposits * 100 Share Holder’s Equity + Total Liabilities

2005 = 1939391 * 100 26759737

= 7.25 %

2004 = 1630867 * 100 20188658

= 8.08 %

2003 = 1458929 * 100 14321107

= 10.19 %

The return on investment shows the average return earned by all the investors and

stakeholders of the business. The net profit is available to the share holders whereas

markup is paid to the creditors. The bank has been giving quite steady ROI since 2003

and it has remained between 10.19% to 7.25%. The decrease in the cost/return paid on

deposits or increase in total liabilities result in decrease in ROI.

ADMINISTRATIVE EXPENSES TO DEPOSITS

Return on Investment

2005 20042003

0

510

15

Years

%

2005 2004 2003

BANK ALFALAH LIMITED= Administrative Expenses * 100 Deposits

2005 = 503256 * 100 20481568

= 2.46 %

2004 = 402559 * 100 15820473

= 2.54 %

2003 = 337447 * 100 11878221

= 2.84 %

This ratio is very helpful in determining the relationship between the deposits and the

cost associated with maintaining them. The benchmark figure is 2%-3%. This ratio shows

the shrewdness of the management of Bank Alfalah. It is below 3% and also showing

decreasing trend in the past years.

COST OF FUNDS RATIO

Admn. Expense to deposit ratio

2004

2003

2005

2.2

2.3

2.4

2.5

2.6

2.7

2.8

2.9

Years

%

2005 2004 2003

BANK ALFALAH LIMITED= Cost/Return on Deposits + Admn. Expenses * 100 Total Deposits + Borrowings

2005 = 2227297 * 100 25120698

= 8.87 %

2004 = 1876902 * 100 18792713

= 10 %

2003 = 1651011 * 100 13226534

= 12.48 %

This ratio shows the cost that the bank has had to incur on the financing it has received

from various sources. These sources can be the money deposited by the depositors or the

funds that the bank borrows from other banks and agents etc. The bank pays markup to

these banks and agents and bears admn. Expenses to maintain deposits. Ideally, the cost

of funds should be less than the ROI but in this case ROI is lower than costs of funds.

Debt to Equity Ratio

Cost of Funds ratio

20052004

2003

0

2

4

6

8

10

12

14

Years

%


= Total deposit Equity

2005 = 20481568 899469 = 22.8 times

2004 = 15820473 886399

= 17.85 times

2003 = 11878221 855094

= 13.9 times

This is also a very critical ratio and shows the long-term solvency position of an

organization. The bench marked level is 10 times. The bank should increase its equity

level i.e. reserves plus assigned capital. Bank Alfalah has a very high debt equity ratio

which shows that outsider’s money is being used to run the business. And the D.E ratio of

Bank Alfalah is kept on increasing

SEGMENT ANALYSIS

Debt Equity Ratio

2005

2004

2003

0

510

15

20

25

Years

%

2005 2004 2003


SECTOR DEPOSITS ADVANCES Rupees Percentage Rupees Percentage In 000's % In 000's %PUBLIC 3021384 14.75 841748 5.52PRIVATE 17460184 85.25 14400569 94.48 TOTAL 20481568 100 15242317 100

The segment analysis shows the breakup of advances and deposits according to the sector

of the economy. The sectors have been divided into two broad categories, i.e. public

sector and private sector.

It is evident from the table that most of the bank’s dealings are with the private sector.

94.48% of advances are towards this sector. The public sector has only 5.52% of the total

advances. Similarly, 85.25% of the deposits are by the private sector and the public sector

is only a minor depositor with nearly 15%.

ADVANCES

6%

94%

PUBLIC PRIVATE

• SWOT Analysis

Strengths

Weakness

Opportunity

Threat


SWOT

Strengths:

Bank is in its growing stages so there is good financial position.

Professional and Committed workforce

Low cost than other major banks

Wide National Branch Network

Weaknesses:

Less Advertisement

Slow in introducing new products

Opportunities:

Bank Alfalah can fully avail the facilities of E-banking.

Extension of International network of the branches

Introduction of innovative products

Growing market

Credit Card Facility

Threats:

Uncertain economic conditions

Action taken by competitors

Political instability


PEST

Political Environment:

Government encourage a sound financial industry

Inconsistent Government Policies because of instability in the country

Economic Environment:

As far as the economic conditions goes than we all know that the economic conditions

look like that they are getting favorable in Pakistan.

Pakistan is the country that is benefiting best from the Afghanistan Crisis, as it is

having Aids that is favorable for the economic conditions as well as the industries.

As far as the rate of profit is concerned it is declining than it was in the past so

people are reluctant to deposit their money in banks.

Social Environment:

The social environment in this regard is always favorable because the businesses

in which the banks are involved do not have any side effects on the society.

Majority of the people in Pakistan have faith in the banks and feel that there

money is safe in the banks.

Technological Environment:

The overall technological environment for this industry is favorable.

Technological advancements constantly bring new machines, which have the

ability to produce more. It makes the process of the faster than before.

The technological change in the computer industry is favorable for us. The reason

for that is that because of rapid growth in the computer industry which will

encourage online banking.


Competitors

Despite notable economic uncertainties, the financial strength of Bank Alfalah Limited

has greatly enhanced during the previous years. The successful expansion program

proved their capability and commitment in comparison with the competition in the

financial sector. The Banking structure in Pakistan comprises of:

Central Bank

Commercial Banks

Investment Banks

Development finance Institutions (DFIs)

Specialized Banks

Foreign Banks

Bank Alfalah is a private commercial bank so the major competitors of Bank Alfalah are

the following:

Askari Commercial Bank Ltd

Union Bank Ltd

Soneri Bank Ltd

Prime Commercial bank

The bank of Punjab

Bolan Bank Ltd

Bank Al-Habib Ltd

ABL

Faysal Bank Ltd

Platinum Bank Ltd


Suggestions & Recommendations

Based on the SWOT analysis of the National Bank of Pakistan, it is observed that the

Bank like the other public sector Industries has not been showing up to mark

performance. There is a long list of weaknesses that is given on the previous page. Most

of them are going along since long time and that all efforts made to remove them have

not succeeded. On the basis of SWOT analysis of the Bank the following suggestions and

recommendations are given.

NBP should be in pace with on going changing in banking industry, like other

bank. Now this bank combining all it power and trying to approach other banks.

Latest reorganizing efforts are necessary to make it cost effective also making its

facility accordingly to modern banking. These must continue.

Bank management has to put its all effort to change the prevailing culture of the

bank and to put the foundation stone of business oriented culture. In which

employees give important to the bank and its customer.

Bank should try to get rid of the political influence to be able to compete in the

industry with prudent and strong policies.

The undue reliance on the public sector be minimized and ventures of private

sectors should be taken as well

Redefining of rules, regulations and policies should be made implemented at all

cost.

Efforts of great importance to be made for the over the counter services of general

banking making it more simple and faster to get a better response of the

BANK ALFALAH LIMITEDcustomers. The behavior of the employees, especially on the counter has to be

strictly monitored and checked.

The still existed bureaucratic approval system has to be demolished.

All advances should be made by getting the maximum security and should focus

on productive work.

Better and comprehensive long-term and short-term planning should be made to

forecast the future needs.

There is a possibility of establishing a task force to ascertain the effectiveness of

the policies being implemented.

The Bank should develop a comprehensive recruitment policy to make only the

competent ones to be on the job.

There is a still a vast pool of incompetent employees that has to right sized.

There is lack of promotional element in the planning and budgetary decisions of

the Bank that has to think seriously.

All branches of the Bank should be computerized for increasing the effectiveness

and efficiency of its employees.

Efforts should be continued to keep the powers of employees union to the

minimum, like the current situation.

Promotions must not be delayed and should be made on time to further increase

the commitment and efficiency of the employees.

These and many others can make a good set of recommendations, which have to be made

possible to escape from the threats and weaknesses and the risks in environment that

surrounds the Bank. The management do considers the policy matter that are not helping

the Bank, but are still in practice due the absence of prudentially regulated system to

protect them and the Bank, Efforts have been made with serious concern to give NBP a

status that It has to maintain by having practices of:

Right sizing of the employees.

By closing unprofitable branches.

By introducing a merit based selection criteria.

BANK ALFALAH LIMITED Promotions made conditional with qualifications.

REFERENCES

I have concerned the following resources for the making of my internship report. These

resources include the different employees of NBP, different relevant internet websites

and the annual report of NBP.

WEB REFERENCES:

1. www.Nbp.com.pk

2. www.bankshistory.com

3. www.google.com

4. www.yahoosearch.com

5. www.hotmailsearch.com

6. www.gmailsearch.com

7. www.ask.com

8. www.allrefers.com

9. www.reports.com

http://www.allrefers.com/

http://www.ask.com/

http://www.gmailsearch.com/

http://www.hotmailsearch.com/

http://www.yahoosearch.com/

http://www.google.com/

http://www.bankshistory.com/

http://www.NBP.com.pk/


Recommendations

After doing internship of six weeks in Bank Alfalah Limited, I have analyzed some

problem in the Bank. Following are my recommendations:

Web Site:

Bank Alfalah limited has the web site, which has not been updated. The web site is very

less informative and it won’t leave a good impression on the visitor. So I suggest that it

should be updated to meet the requirements of the visitors.

Marketing:

Bank Alfalah is not very prompt in its marketing like its competitors. Most of the people

in Pakistan know nothing about the bank or its products so the bank should spend and

concentrate more on its marketing through various communication channels.

Misdistribution of work:

In Bank Alfalah, there is misdistribution of work; some people are over burdened with

the work. So I suggest that there should be fair distribution of work in all the

departments.

Participative management:

BANK ALFALAH LIMITEDParticipative management concept should be adopted, where ideas from the employees

should also be taken, not only for developing products but also on service, efficiency,

employee morale etc. in order to improve them.

Split Units:

Bank Alfalah is a very well established bank, but the number of air conditioners they

have in the whole bank is very less. Bank should increase the number of its Split units,

because summer stays longer in Lahore.

Fax Machines and Photocopying Machine:

The number of Fax machines and photocopying machine in the bank are also less than

they are needed. For photocopying one has to go downstairs. So there should be more

machines and also their placement should be at the right place.

Appropriate Dinning Hall:

The major problem which I have faced in the bank is of the lunch. In the surroundings of

the bank, it didn’t have restaurants so the bank has its own dining hall. But there was no

arrangement for the lunch in that dining hall so I think that there should be an appropriate

dining hall.


Conclusion

The conclusion of Bank Alfalah Limited is as follows:

Good Image:

Bank Alfalah has the benefit of having better reputation and image because of having

the strength of Abu Dhabi consortium and under the leadership of His Highness

Sheikh Nayan Mabarak Al-Nahayan. People feel lesser risk for investing their money

with the bank.

World Class Services:

The bank is providing its customers world class and excellent services. This is the

main reason for the growth of the bank.

Coordination:

Meetings are held very frequently which keeps the head-office well informed about

the performance of its branches and also provides officials with the opportunity to

communicate, discuss and deals with different situations as they arise.

Employee Behavior:

The employees of Bank Alfalah Limited are very committed to their work. They are

very hard working and punctual but some of them have problems with he

environment of the bank and they feel that the branch environment is not very

encouraging.


LIST OF ANNEXURE

Annexure A: Deposit Slip

Annexure B: credit card payment slip

Annexure C: FC account slip (dollars)

Annexure D: FC account slip (pounds)

Annexure E: Credit slip


ANNEXURE A

Bank Alfalah Project

Documents

Transcript of Bank Alfalah Project